China's third-largest carrier China Telecom is preparing a
possible bid for a contract to build and run a new mobile
broadband network in Mexico and is seeking local partners to join
it in a consortium, three people with knowledge of the matter
said.

It has already secured up to several billion dollars of financing
from Chinese state-controlled banks, including the China
Development Bank, for the project, which Mexico estimates will
cost $10 billion over 10 years, one of the people said.

The proposed network is part of a sweeping reform designed to
break billionaire Carlos Slim's hold on the Mexican telecoms
business, but the Chinese involvement could prove controversial
and trigger concerns from the U.S., some Mexican officials say.

Mexico's government is trying to ease its economic dependence on
the United States and ramp up Chinese investment. A Chinese-led
consortium looks poised to win a $3.75 billion contract to build
a high-speed train system, sources with knowledge of the plan
say. This is despite the group's previous winning bid being
revoked late last year amid a political scandal.

Representatives for China Telecom did not return requests for
comment, and representatives for China Development Bank could not
be reached for comment. A spokesman for Mexico's
Communications and Transport Ministry (SCT) declined to comment.

On a trip to China in November to reduce tensions caused by the
train contract cancellation, Communications and Transport
Minister Gerardo Ruiz Esparza also discussed the mobile network
plan with the Chinese government, according to a ministry press
release.

State-owned China Telecom's international subsidiary China
Telecom Global wants to be an operating partner in the network
and not just an investor, said the people, who requested
anonymity.

It is still looking for Mexican partners, the people said. It was
unclear who had been approached.

GOVERNMENT ASSETS

The people did not say how big a stake the Chinese would take in
the consortium that would make the bid. Under a government
timeline published last year, the tender should have begun last
month, with a winner due to be chosen in August this
year.

Creation of the wholesale network was written into Mexico's
constitution as part of telecom market reforms in 2013. It aims
to allow Slim's mobile competitors better coverage without using
the network of his company America Movil, or bearing the cost of
building their own.

Under current plans, Mexico's government will not take a stake in
the company that runs the network, according to two of the
sources.

Instead, the winning group will have a public-private partnership
contract with the government which will allow it use of some
state infrastructure, such as sites to build towers on and a
fiber optic network owned by the state electricity firm.

It will also have a concession for use of 90 MHz of the valuable
700 MHz spectrum.

In exchange the network will have to cover large parts of the
country with the exact coverage to be decided in the tender. The
winning company would then subcontract telecoms equipment makers
to build and maintain the network.

If the Chinese bid wins, it would mean the Chinese government
indirectly owning part of a telecoms network that would cover
most of Mexico right up to the U.S. border. Many large U.S.
companies also have operations in Mexico.

Chinese telecom equipment maker Huawei [HWT.UL] has expressed
interest in the project and would be more likely to supply parts
to the network if it is Chinese-led and financed, as has happened
in other deals outside China.

Huawei has been largely locked out of supplying network
equipment to the U.S. because of opposition from
U.S. lawmakers who allege the company maintains ties to the
Chinese authorities and could use its equipment to spy on U.S.
communications.

Huawei has consistently rejected the allegations.

Representatives for Huawei did not respond to a request for
comment.

The SCT already received an unsolicited bid proposal from a group
of ex-telecoms executives, lawyers and bankers supported by
equipment makers Ericsson and Alcatel-Lucent.

The ministry chose not to accept it in order to keep the
competition level, one person said. Accepting it would have meant
giving the team an edge in the bidding process.

Finland's Nokia and U.S. equipment maker Cisco Systems Inc. have
also had meetings with the Mexican government about a possible
bid, one person said. Spokesmen for the both companies declined
comment.